Tax Solutions

Trust Fund Recovery Defense

Assessed with a trust Fund Recovery Penalty (TFRP)?

A Trust Fund Recovery Defense can help.

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“When a business is facing cash flow troubles, temporarily “borrowing” employment taxes for liquidity’s sake has gotten more than one business owner in hot water with the IRS.”

- Alyssa Maloof Whatley

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What is a Trust Fund Recovery Defense?

As you can imagine, failing to pay the taxes you withheld from employee paychecks is considered a very serious offense by the IRS.

The willful failure to remit these payments that were held in trust for the government can leave business owners or any person deemed a “responsible party” liable for the deposits as well as paying the trust fund recovery penalty.

There are legitimate circumstances where a defense can be raised against the trust fund recovery penalty.

Since the IRS takes a fairly broad view when it comes to finding people who may be responsible for the “willful” failure to remit, sometimes people find themselves swept up in a TFRP action.

If you believe you’ve been wrongly assessed a trust fund recovery penalty, it’s important to speak to an experienced tax attorney because this tax debt can leave you facing significant financial consequences.

From left to right, Alyssa Maloof Whatley, Harrison Kulp, and Kiara Maxie
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Can you avoid the Trust Fund Recovery Penalty?

The easiest way to avoid the TFRP is to always properly withhold taxes, pay your trust funds to the government on time, and to never borrow from them for any reason.

In addition, there are additional ways to avoid being assessed the TFRP such as designating payments to pay off the TFRP portion, paying the balance down so the TFRP determination is not necessary, or the business agreeing to pay the liability back in full and signing an extension of the assessment. However, you must seek tax counsel and advice to explore what solution is right for your particular facts and circumstances.

Who is liable for the Trust Fund Recovery Penalty?

Any officer of a corporation, sole proprietor, trustee, or person with authority over the funds of a business can be considered liable for the willful failure to pay employment taxes held in trust for the government on behalf of the organization’s employees.

What if I am responsible for paying the Trust Fund Recovery Penalty and can’t pay in full?

If you are deemed the responsible party and you can’t make your TFRP restitution in full, you have the option to resolve this tax debt using many of the same options available to any other delinquent taxpayer. You may be able to take advantage of an Offer in Compromise or entering into a payment plan with the IRS.

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